November 23, 2021 16:35:45

Volatility is expected overnight in the kiwi when the RBNZ meet to raise rates for a second consecutive time. A 25bp hike is baked in which would take the policy rate to 0.75%, the highest in the G10. Money markets are pricing in roughly a 30% chance of a 50bp move.

Further policy tightening was made “contingent on the medium-term outlook for inflation and employment” at the October meeting. Since then, we’ve seen the economy and inflation running hot. CPI climbed higher than expected to 4.9% y/y. Employment smashed estimates, driving unemployment down to 3.4%. Short-term inflation expectations have surged to their highest in ten years.

Key will be forward guidance and the bank’s latest rate projections. Some analysts are forecasting rates of 2% by the end of next year and a peak cash rate of close to 3%. If the RBNZ disappoints and we also “only” get a 25bp move, the kiwi will fall as the market embarks on a dovish re-pricing further out.

NZD/USD in broad range

The main driver in the major has been either dollar weakness or strength, over and above NZD sentiment. We pushed higher in mid-October on a softer greenback. New swing highs printed at 0.7218.

Since then, prices have fallen through the 200-day SMA and more recently the 50 and 100-day SMAs. Last week’s low at 0.6979 was broken yesterday, so now acts as resistance.

We are currently trading below a Fib level at 0.6958. RBNZ disappointment sees sellers look for the September low at 0.6859. This comes ahead of the August cycle lows at 0.6805/08.